Investors Back Martha

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Whatever you might think of Martha Stewart the person, investors are clearly behind Martha Stewart the company. Martha Stewart Living Omnimedia (NYSE: MSO), the publishing, television, and merchandising company, rose in early trading today on news that it expects to beat previously published estimates for fourth-quarter earnings. Third-quarter results, meanwhile, were better than expected.

A quick scan of the company's earnings release doesn't seem to hold much in the way of good news. Revenue fell sharply year over year, leading to an operating and net loss. All of Martha Stewart Living Omnimedia's (MSLO) operating segments saw revenue fall from 2002 levels except television, which managed only a slim pop to $6.6 million from $6.4 million.

But the company pointed to positives: an improved cash position, new product and brand launches, cost savings at its online and direct marketing division, and general cost savings companywide that led to lowered overhead in Q3. Also notable was the news earlier this month that retailer Kmart (Nasdaq: KMRT) is standing behind MSLO's brands.

While not discussing reasons in the press release, CFO James Follo raised EPS guidance for Q4 and while we put limited stock in his lightly documented figures it would seem to suggest optimism about the business' prospects. Even so, with the company aggressively cost-cutting it will be continually important to understand the contribution all the components of the income statement -- both revenues and operating costs -- are making to bottom-line performance.

MSLO, recommended by David Gardner in Motley Fool Stock Advisor last year, was further supported by him this summer following first-quarter earnings. The company's shares eventually rocketed in May before falling again, but since August they've risen steadily. That the market responded so well to the earnings news today is a sign that investors believe better days await this company that has, in the past, demonstrated the ability to grow earnings and generate free cash flow.

If this confidence is rewarded with a few more quarters of growth at the company's key segments, MSLO may become a darling again before long.

Dave Marino-Nachison doesn't own shares of any of the companies in this story. He can be reached at dmarnach@fool.com.